Quote from @Venice Victory:
Quote from @James Hamling:
Quote from @Venice Victory:
That's it, that is the question!
How much would you spend today for a monthly cash flow of $40k? Explain.
I really like this question for discussion Venice, but one very major factor left off is at what risk exposure.
Example;
I am invested in a fund that does active option plays on Tesla. Most would think it insanely astronomical returns, and it is, but it's also exceptionally high risk. So it's weighted returns.
Conversely, a new built A class SFR, in A class market of significant growth via a well laid out planned city development, great schools, area people are glamouring to move to, a-class tenants, very very low risk. So in that a much lower rate of return is acceptable given the safety and certainty level of things.
And those factors of risk exposure and weighted returns, drastically change how much capital I'd be comfortable to outlay, for a $40k annual return.
If were talking the later, I'd be a very happy camper at $6.85m.
If talking the former, I'd consider up to $600k.
Thanks for the feedback and contributions. Not sure if it's because you started with my name but this response makes me feel more safe to share more details.
Its an interesting multifamily that was repositioned to be rented out by bedroom with the majority of the rents being paid by nonprofits.
There is steady supply of renters, "guaranteed" rent and the organization wants to continue to partner. I'm not sure how the current political impacts this. Current owner says there weren't impacted the last time it shutdown. A motivated seller could say anything to close. Any insight here would be helpful?
I want happy campers in my network - you've helped reiterate any deal can be good at the right purchase price.
Huh, well, that is a kudos on your level of research or you've got some serious luck on your side because as chance has it I have experience working both with organizations similar to what you described and in leasing by the room.
First thing to know is these organizations love to convey the highest level of certainty, assurance in longevity, yada-yada. But the moment you say "well that sounds awesome, can you get that over to me in writing" it instantly turns into uhm's ah's and but's.
There funding is almost never secured for more then a year at a time. That's your first hurdle, to find out the status of there funding. Not promised or planned, actually funded.
Next, press and negotiate to find what you can get for the longest commitment possible. I have known one to get a 10yr commitment. In that it had a kind of early-termination clause. It wasn't called that but worked similar that if ended sooner then the 10yrs there was a financial hit for each yr not honored.
You have to start there because the only thing you can use is what's known. So if it's 1yr commitment, use that and assume after that it's over and base analysis on what you'd have to do to make it market tenancy.
And onto the room rental side of things. Short-short version it's hell on wheels.
Yes, some specialize in this and do very well but it's really nothing like any other tenancy model. It has the highest turnover rate, and the highest level of active inputs. Not to mention sky-high drama factor. You have multiple people living in each others spaces. And keep in mind who it is that would be living by the room.
Combine those factors and start thinking of nightmare scenarios, because they are very real and you must be proactive in policing against there potential to occur.
It's best to have a house manager. I'd argue absolutely necessary.
You also have to think about outfitting common spaces, how your going to do that, and how your going to do it in a way that keeps the "village" happy and nice with everyone. Yes well defined rule are very important and help but these are humans were talking about so you have to go deeper then that and consider that human aspect for community/shared spaces.
You will be providing other services if smart, things like great high speed wifi, cable isn't a bad idea as it's a good pacifier. Setting up out door grilling space, because if you don't they will so it's a matter of do you want it at random or by designation.
Oh yeah, there is a whole lot to it. Hence why there is the $ that some are flashing.
And I am betting the headaches is why seller is so motivated and is flashing that $ and hyping it up like it's so profitable, yeah come on do it, it's so great..... it's so great they are chomping at the bit to get out from under it.
If in your shoes I think I'd call sellers bluff and put em against the wall of it via how I construct the purchase offer. I wouldn't do it on a cash-out basis, I'd keep em tied to it. I'd do it on a terms deal. 3yr in total.
If all is good, there should be no problem with that, right.
Think of it like buying an existing performing business. There is always a transition period where selling owner stays on and over time new owner transitions into full control. Similar to that.
Lastly, your going to want to get with local governance, a lot more then normal. Don't just find out how it's all licensed and check on any historical issues with it, no you want to meet with local board members, find out how they really feel about the place and what the cities wants and plans are for the place. Rarely do they like such units being operated in such way. You want to know where you stand before jumping in the pot.
And who knows, maybe what seems bad can bring better opportunities.
I had one once, a rooming house buy. Turned out, city board hated the place. Hated it so much, that they gave me variances that nobody had gotten in 20yrs in the area to knock it down and redevelop the site. And what seemed was good turned no-go, turned into a nice deal end of day. I sold rights to strip it to a reclamation co., than sold the approved ready to go deal with plans to a builder who completed the redevelopment and made themselves a nice penny also. Everyone won, city was ecstatic, Seller, me, builder, end buyer, following tenants.
Go where the deal takes you, don't wear blinders, keep your vision open for whatever opportunities present themself, and NEVER invest on hope, facts only, known documented FACTS.
Hope is a table at the casino.
